Correlation Between Gran Tierra and Headwater Exploration

Can any of the company-specific risk be diversified away by investing in both Gran Tierra and Headwater Exploration at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Gran Tierra and Headwater Exploration into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Gran Tierra Energy and Headwater Exploration, you can compare the effects of market volatilities on Gran Tierra and Headwater Exploration and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Gran Tierra with a short position of Headwater Exploration. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gran Tierra and Headwater Exploration.

Diversification Opportunities for Gran Tierra and Headwater Exploration

0.78

Correlation Coefficient

Gran Tierra  Headwater Exploration

Poor diversification

The 3 months correlation between Gran and Headwater is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Gran Tierra Energy and Headwater Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Headwater Exploration and Gran Tierra is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Gran Tierra Energy are associated (or correlated) with Headwater Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Headwater Exploration has no effect on the direction of Gran Tierra i.e., Gran Tierra and Headwater Exploration go up and down completely randomly.

Pair Corralation between Gran Tierra and Headwater Exploration

Assuming the 90 days trading horizon Gran Tierra Energy is expected to under-perform the Headwater Exploration. In addition to that, Gran Tierra is 1.69 times more volatile than Headwater Exploration. It trades about -0.12 of its total potential returns per unit of risk. Headwater Exploration is currently generating about 0.0 per unit of volatility. If you would invest  650.00  in Headwater Exploration on December 30, 2024 and sell it today you would lose (8.00) from holding Headwater Exploration or give up 1.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Gran Tierra Energy  vs.  Headwater Exploration

Gran Tierra Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gran Tierra Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Headwater Exploration

Risk-Adjusted Performance

Very Weak

Over the last 90 days Headwater Exploration has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Headwater Exploration is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Gran Tierra and Headwater Exploration

The main advantage of trading using opposite Gran Tierra and Headwater Exploration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gran Tierra position performs unexpectedly, Headwater Exploration can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Headwater Exploration will offset losses from the drop in Headwater Exploration's long position.

The idea behind Gran Tierra Energy and Headwater Exploration pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .